S&P Global places Russia in ‘selective default’

S&P Global placed Russia in a “selective default” rating after the Russian government said last week that it had paid off about $650 million in dollar-denominated debt into rubles.

The rating agency said on Friday night it did not expect investors to be able to convert ruble payments into US dollars equivalent to the original amount owed, pushing Russia into its first sovereign debt default. in currencies for more than a century.

The bonds have a 30-day grace period, giving the Russian government time to repay in dollars or find another way to avoid default. S&P Global said it did not expect the government to convert the payments within the grace period.

“Sanctions against Russia are likely to be further tightened in the coming weeks, hampering Russia’s willingness and technical capabilities to honor the terms and conditions of its obligations to foreign debt holders,” the statement said. rating agency.

S&P Global’s move came after a dollar-denominated Russian government bond matured and another coupon payment fell due on April 4. On the same day, the US Treasury Department tightened its restrictions on Russian transactions in an effort to force Russia to choose between draining the dollar reserves it has or by using new revenue to avoid defaulting on its debt. The department blocked Russia from using dollars held in U.S. banks for its bond payments, and the deals were not closed by JPMorgan. Subsequently, the Russian Finance Ministry said it paid the debt in rubles.

While the finance ministry said it considered its debt obligations to have been met “in full”, rating agencies said payment in a different currency than agreed would be a default. None of the bonds whose payments were to be paid on April 4 included a payment clause in a currency other than the dollar.

Sanctions, including the freezing of central bank reserves held abroad, were imposed on Russia after its invasion of Ukraine in late February. Rating agencies then reduced Russian debt to junk status and investors bet on a default. But for weeks Russia continued to repay its debt. U.S. officials cleared the deals and said U.S. bondholders would be allowed to receive debt payments, despite sanctions, until May 25.

If Russia does not repay the debt in dollars, it is unclear how the problem will be solved. When the 30-day grace period on April 4 bond payments expires, credit rating agencies will be prohibited by European Union sanctions from providing ratings to Russian entities and will not be in able to judge whether a defect has occurred. The companies are withdrawing all their ratings by the April 15 deadline set by the EU.

Last month, Russian Finance Minister Anton Siluanov accused countries that froze Russia’s international currency reserves of trying to create an “artificial defect”. Last week, the Finance Ministry said that if reserves were unfrozen, payments in rubles could be converted into dollars.

S&P Global also said on Friday it was holding its junk “CC” debt rating for Russian ruble-denominated sovereign debt (known as local-currency debt) because it was unsure whether bondholders not residents can access their coupon payments.

According to documents published on the website of the Russian Ministry of Finance, coupon payments for local currency bonds were being paid. But in March, Russia blocked interest payments to nonresidents.

“We currently do not have definitive information on the payment process,” the agency said.

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